Recovery Falters In Europe

Overview:  The combination of robust US jobs and wage growth, more comforting words from Powell and a strong rally US stocks before the weekend helped lift Asian markets today and underpinned risk-taking appetites.  However, renewed protests in France (and Hungary) coupled with weak German factory orders have prevented European bourses from fully participating in the equity recovery.  Yields rose in Asia-Pacific but are lower in Europe, and US rates are a little softer after both the two-year and 10-year yield rose 11 bp at the end of last week, despite what the consensus saw as a dovish shift by Powell.   The greenback is heavier against the major currencies and most emerging market currencies.  Oil prices are a little less than 2% higher as the streak extends into a sixth session.  

Asia Pacific

US-Chinese trade talks were held in Beijing today.  Expectations of a breakthrough were low, but the unexpected appearance of Vice Premier Liu He lent the mid-level meeting more gravitas.  The pieces appear to be falling into place for President Trump to meet Chinese Vice President Wang Qishan at the World Economic Forum in Davos.  The freeze in tariff action expires in early March.  On the face of it, there would seem to be scope for a deal.  The US has agriculture and energy that China wants.  China has begun allowing greater access to its financial markets and is reducing some tariffs and has rolled back the 25% retaliatory tariff on US autos.  It has also increased punishments for intellectual property violations.  Chinese officials have begun playing down the "Made in China 2025" rhetoric that seemed to antagonize US officials, even though it is not different in spirit than Make America Great Again, insofar, as both are ultimately import-substitution development strategies.  The challenge is that the US wants to address non-tariff barriers and the divergence between declaratory and operational policy.  

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Read more by Marc on his site Marc to Market.

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